2026-07-18 22:00:13
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Today at a glance:
⚡️ TSMC: AI Megatrend Deepens
🔬 ASML: Second Guidance Hike
💊 J&J: Oncology & Icotyde Deliver
💼 UnitedHealth: Turnaround Print
👔 Morgan Stanley: $10 Trillion Milestone
🏛️ Goldman Sachs: SpaceX Leads Deal Run
📈 BlackRock: Assets Cross $15 Trillion
🧬 Abbott: Diagnostics Carry The Quarter
🦾 Intuitive Surgical: Growth Deceleration
🛩️ United Airlines: Premium Absorbs Fuel Spike
TSMC’s Q2 revenue rose 34% Y/Y to $40.2 billion ($900 million beat), while EPS per ADR surged 74% Y/Y to $4.31 ($0.37 beat). Gross margin expanded to a stunning 68%, operating margin hit 60%, and net profit margin reached 56%. It was the fifth straight quarter of record earnings. After a near-40% run this year, the stock is priced for blowouts, and even this one triggered classic “sell-the-news” profit-taking.
CEO C.C. Wei maintained his bullish tone, saying that “our conviction in the multi-year AI megatrend remains very high.” Advanced nodes (7nm and below) now generate 77% of wafer revenue (up 3pp Q/Q), with 3nm at 30% and 2nm debuting at 3% ahead of a steep ramp in the back half. Management flagged agentic AI as a new demand driver, reviving CPU orders in data centers alongside accelerators. Mature nodes (45/40nm, 28nm, 16nm) all declined sequentially, an early sign that higher memory prices may be pinching mainstream semiconductor demand.
The two big strategic announcements were another $100 billion US investment and a massive CapEx raise:
Total US commitment now reaches $265 billion, funding 12 leading-edge and packaging facilities in Arizona.
FY26 CapEx was raised to $60–$64 billion (from $52–$56 billion).
CFO Wendell Huang said CapEx over the next three years will be “significantly higher” than the past three, with 70–80% of the 2026 budget going to advanced nodes.
TSMC raised FY26 revenue growth guidance to slightly above 40% in USD (vs. ~35% consensus), up from >30% prior. It was the second hike this year. Asked about Samsung and Intel, Wei was dismissive. He explained that foundry partnerships aren't like "buying milk from the 7-11," and customers locked in for years won't switch on price.
The real risk for TSMC is cost. Overseas fab ramps and the 2nm expansion will temporarily weigh on gross margin, just as CapEx surges. Watch whether gross margin can hold near 67% in Q3 while record spending and the steepest phase of the 2nm ramp hit the P&L simultaneously. The widening of capital intensity could start to compress industry-leading margins even as the AI demand cycle extends into 2028.
ASML's Q2 revenue rose 21% Y/Y to €9.3 billion (€400 million beat), with GAAP EPS up 29% Y/Y to €7.59 (€0.60 beat). Gross margin came in at 54%, above guidance, on high-margin Installed Base Management sales. Free cash flow reached €1.3 billion, and ASML repurchased €1.1 billion of shares. Shares are up nearly 70% YTD.
The big news was the second guidance raise of the year, along with concrete multi-year capacity plans:
FY26 revenue guidance was lifted to €43–€45 billion (from €36–€40 billion, and vs. €39 billion consensus).
FY26 gross margin was raised to 54–56% (from 51–53%).
Q3 revenue is now €11–€12 billion (vs. €10.4 billion consensus).
Low-NA EUV capacity is projected to grow ~30% in 2027 to ~85 units, with another ~30% increase in 2028 (~110 units).
DUV immersion capacity is also expanding 30% in each of the next two years.
The AI infrastructure buildout has been a flywheel for ASML. Advanced logic revenue is expected to grow ~25% this year and memory ~75%, with customers “aggressively adding capacity” across 5nm, 4nm, 3nm, and 2nm nodes and already planning for 1.4nm.
Intel Foundry began production on the Intel 18A node using ASML’s most advanced High-NA EUV tool. Meanwhile, TSMC has said it will hold off on High-NA through 2029. CFO Roger Dassen also flagged potential pricing power on Low-NA tools given “current environment” dynamics. It was a nod to the reported pricing dispute with TSMC. China’s share of system sales dropped further to 14% (from 19% in Q1), tracking below the ~20% full-year target.
ASML confirmed its Capital Markets Day for June 10, 2027, when it will update long-term outlook. The next question is whether the pricing conversations with customers translate into meaningful ASP gains in 2027, or whether TSMC's pushback caps how much of the AI demand tailwind flows through to ASML's margin structure.
2026-07-17 20:03:08
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Netflix no longer needs to prove that streaming can be profitable. It needs to prove that a mature streaming business can continue to grow. The market has expressed skepticism, with shares down more than 40% in the past year. The Q2 FY26 print offered no relief, with the stock falling roughly 8% after hours.
The company walked away from Warner Bros. Discovery last quarter, avoiding an expensive bidding war and collecting a $2.8 billion breakup fee. But the decision also removed a potential shortcut to the next phase of growth. Netflix must now generate it internally through higher prices, advertising, live programming, and a wider variety of content.
That task is becoming more urgent as competition for attention intensifies. YouTube continues to gain television share, free services like Tubi are growing, and traditional media companies are using sports to pull audiences into their platforms. Netflix’s response is to give viewers more reasons to open the app without weakening the economics that made the business so attractive.
Today at a glance:
🍿 Netflix Q2 FY26
📺 Becoming the bundle
📈 The battle for attention
💳 Stripe wants to buy PayPal
Revenue +13% Y/Y to $12.6 billion ($20 million miss).
Operating margin 33% (-1pp Y/Y).
EPS +11% Y/Y to $0.80 ($0.01 beat).
Cash and short-term investments: $9.1 billion.
Debt: $14.4 billion.
Revenue +13%-14% to ~$51.2 billion with a narrower range.
Operating margin 31.5% (+2pp Y/Y, unchanged from last quarter).
📊 Solid, but no raise: The numbers came mostly in line with consensus. The operating margin exceeded Netflix’s own forecast, but the full-year outlook was only narrowed to the same midpoint. The slight Y/Y margin compression reflected front-loaded content amortization, with expansion set to resume in the second half. Management expects Q3 operating margin of 33%, up from 28% a year ago. In a world where outlooks are meant to be beaten and raised, it wasn’t quite what Wall Street was hoping for. The expected 12% Q3 revenue growth would be the slowest since 2023.
📢 Ads doubling on schedule: Netflix reiterated its expectation for roughly $3 billion in 2026 ad revenue, with US upfront commitments expected to close within weeks. Programmatic access is expanding to Pause Ads and live inventory this summer, reducing the manual friction that kept smaller advertisers out. How far the business scales will depend heavily on how automated it can become.
📺 Live punches above its weight: Members watched 97 billion hours in H1, up 2% Y/Y and accelerating from 1.5% growth in 2025. Live programming will consume just over 5% of 2026 content spending and drive only about 1% of view hours, yet it accounts for six of Netflix’s 10 largest new-member sign-up days over the past five years. With the NFL and Fury-Joshua, Netflix is buying sign-ups more than hours.
🤖 GenAI at scale: GenAI workflows touched ~300 titles in 2026, concentrated in post-production. Management framed it as shots and sequences that otherwise wouldn’t exist (enhanced crowds, historical battles, worldbuilding), delivered faster and cheaper than traditional methods. Netflix framed the technology as a capability expansion rather than a cost-cutting exercise.
💰 Record buybacks: Netflix repurchased $4.7 billion of stock, its largest quarter ever, with $27.1 billion of capacity remaining after April’s fresh $25 billion authorization. Free cash flow fell to $1.5 billion from $2.3 billion, but the drag was largely cash taxes tied to the Warner Bros. termination fee. The full-year ~$12.5 billion FCF target is unchanged.
📉 Retiring the engagement scoreboard: The What We Watched report moves from biannual to annual starting in 2027, deliberately decoupled from earnings. Management wants the quarterly conversation anchored on revenue and operating profit, not view hours. It’s the same signal as removing subscriber counts. Netflix wants to be judged as a scaled compounder, and it is steadily removing the metrics that invite a different debate. The change is more controversial because management has repeatedly presented engagement as its North Star. Reducing disclosure makes it harder to independently judge what is driving performance. Subscriber churn also remains undisclosed, an unusual omission for a subscription business.
Netflix spent years replacing scheduled television with an ad-free, on-demand library. Now it is selectively rebuilding many of the features it disrupted.
As of its last disclosure in May, the ad tier reached more than 250 million monthly active viewers, up from 190 million in November. Netflix expects advertising revenue to approximately double to around $3 billion this year, but audience growth alone is not enough. The next challenge is converting that reach into better targeting, higher fill rates, and more revenue per viewer.
That helps explain Netflix’s selective push into live sports. The company is not trying to replicate ESPN or Prime Video with full-season packages. Instead, it is focusing on tentpole events that attract large audiences, generate premium advertising inventory, and feel culturally significant.
Its new MLB deal includes Opening Night, the Home Run Derby, and the Field of Dreams game. Netflix will also carry five NFL games this season, including Thanksgiving Eve, Christmas Day, and a potentially decisive Week 18 matchup.
The approach creates appointment viewing without paying to fill hundreds of hours with lower-profile games. It may be a more capital-efficient way to use sports as an acquisition and advertising tool, although Netflix still has to prove audiences will follow isolated events to a platform that is not their year-round sports destination.
The strategy extends beyond sports. Netflix recently added TF1’s live channels and on-demand catalog directly to its service in France. Rather than acquiring a traditional media company, Netflix can integrate third-party programming and serve as the interface through which viewers access it..
The company is also expanding into video podcasts, short-form clips, and licensed videos from publishers. Together, these moves suggest Netflix wants to become more than the place viewers visit for a new season of Stranger Things. It wants to become an app they open every day.
That may increase engagement at a lower cost than premium scripted content. But it also creates strategic tension. Netflix is adding ads, scheduled programming, third-party channels, sports, podcasts, games, and vertical video. If those pieces do not feel cohesive, it risks recreating the bloated television bundle it once replaced.
Netflix’s engagement challenge is visible in Nielsen’s latest data. Streaming represented 47.6% of US TV time in April, up from 44.3% a year ago and near record levels, while cable fell from 24.5% to 21.6%.
Netflix captured 7.8% of US TV time in April, up slightly from 7.5% a year ago but below its 9.0% December peak, when Stranger Things and Christmas Day football lifted viewing. Monthly figures are heavily influenced by release schedules, but the broader competitive trend is harder to dismiss.
YouTube increased its share to a record 13.4% in April. Amazon Prime Video reached 4.2%, helped by its new NBA package, while Tubi hit a platform record of 2.3%. The competitors gaining the most attention are not relying exclusively on expensive scripted series. They combine creator content, sports, free programming, or multiple forms of entertainment.
Netflix argues that retention and customer satisfaction matter more than raw hours watched. That is reasonable for a subscription business. But engagement still supports nearly every part of its strategy. More viewing creates more advertising inventory, improves the return on content spending, reduces churn, and makes future price increases easier to absorb.
Bottom line: Netflix’s ad tier, pricing power, and operating leverage can support low double-digit growth. But at a premium valuation, investors need evidence that its broader entertainment strategy is producing more engagement, stronger monetization, and durable returns on spending. Otherwise, Netflix risks becoming more complex without becoming more valuable.
PayPal may be about to cash out. Reuters first reported that Stripe and private equity firm Advent International have offered $60.50 per share to acquire the company, valuing it at more than $53 billion. The proposal is reportedly backed by approximately $50 billion of committed financing.
This is still an unsolicited offer rather than an agreed deal. PayPal has not formally responded, and the companies involved have declined to comment. However, PayPal has reportedly been working with Goldman Sachs and Evercore to evaluate strategic options, including a potential sale or breakup. The company is not necessarily looking for a buyer, but it appears willing to consider what one might pay.
The strategic logic is straightforward. Stripe built its business by helping merchants accept payments online, becoming one of the most important infrastructure providers in digital commerce. Consumers use Stripe constantly, but most barely know it exists. PayPal brings the missing half of the network: 439 million active accounts, approximately $1.8 trillion in annual payment volume, and Venmo, one of the strongest consumer payment brands in the United States.
A combination would give Stripe a much larger presence on both sides of a transaction. Stripe could continue powering payments for merchants while PayPal, Venmo and Stripe’s Link wallet deepen its relationship with consumers. Braintree would add another large merchant-processing platform, while PayPal’s stablecoin and crypto assets would complement Stripe’s recent acquisitions of Bridge and Privy.
In theory, that creates one of the most comprehensive payment ecosystems in the world. In practice, Stripe would also inherit overlapping products, aging technology, and a collection of businesses PayPal has struggled to integrate. Buying PayPal could accelerate Stripe’s expansion into consumer payments, but combining the two companies without distracting the faster-growing business would be a major undertaking.
For Advent, the attraction is less about strategic fit and more about cash flow. PayPal generated approximately $5.6 billion of reported free cash flow last year, or $6.4 billion on an adjusted basis. A $53 billion purchase price values the company at roughly 8 times adjusted free cash flow, before considering debt, transaction costs, and the cost of financing.
That is the kind of setup private equity looks for. It’s a durable but unloved business, with strong cash generation, and a cost structure that can still be cut. Away from the public market, PayPal could restructure more aggressively without every investment or layoff being judged against the next quarter. Stripe and Advent could eventually relist the company, sell individual assets, or separate the consumer and merchant businesses.
The offer looks generous relative to PayPal’s depressed share price, but less so relative to the cash flow and strategic assets the buyers would receive. PayPal traded above $78 only a year ago, and its network of consumers and merchants would be extremely difficult to recreate from scratch.
Michael Burry, who owns PayPal shares, has already called the proposal too low. His valuation may prove optimistic, but the broader point is reasonable: Stripe and Advent would not be offering $53 billion unless they believed PayPal could ultimately be worth substantially more.
Bottom Line: PayPal became vulnerable because investors stopped believing in its turnaround. Stripe and Advent are betting that the assets are worth more than the public company built around them. At $60.50 per share, shareholders receive a clean exit from years of underperformance. But the first offer may establish only that PayPal is in play, not the price that ultimately gets it sold.
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Disclosure: I own AMZN, META, and NFLX in App Economy Portfolio. I share my ratings (BUY, SELL, or HOLD) with App Economy Portfolio members.
Author's Note (Bertrand here 👋🏼): The views and opinions expressed in this newsletter are solely my own and should not be considered financial advice or any other organization's views.
2026-07-15 01:20:45
Welcome to the Premium edition of How They Make Money.
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A new earnings season is here with the big banks kicking us off.
Later this week, we’ll have a look at Netflix and the picks and shovels of the AI era, TSMC and ASML.
Four of the largest US banks just booked a combined $43 billion in profit, smashing records and beating estimates. They did it despite the Iran war, sticky inflation, and mounting doubts about the staying power of the AI boom.
Even as profits hit new records, the bank chiefs kept pointing to risks shifting beneath the surface: geopolitics, sticky inflation, and elevated asset prices.
High rates and market volatility are a windfall for the banks, while the gap keeps widening between households riding record markets and those squeezed by the cost of living.
Let’s break down the results.
Today at a glance:
JPMorganChase: As Good As It Gets
Bank of America: A Blowout With Caveats
Citigroup: Four Out of Five
Wells Fargo: Fees Do the Heavy Lifting
As a reminder, banks make money through two main revenue streams:
💵 Net Interest Income (NII): The difference between interest earned on loans (like mortgages) and interest paid to depositors (like savings accounts). It’s the primary source of income for many banks and depends on interest rates.
👔 Noninterest Income: The revenue from services unrelated to interest. It includes fees (like ATM charges), advisory services, and trading revenue. Banks relying more on noninterest income are less affected by interest rate changes.
Here are the significant developments shaping Q2 FY26:
💰 Records fall across the board: The four biggest lenders beat expectations despite the Iran war and sticky inflation. The common engine was the trading floor. Every desk cashed in on a volatile quarter, and the results were strong enough that Jamie Dimon told analysts conditions are “getting close to as good as it gets.”
🎰 Trading and dealmaking do the work: Equities desks set records nearly everywhere, led by JPMorgan (+86% Y/Y). A dealmaking revival capped by the SpaceX IPO pushed investment banking to its best showing since 2021. Volatility that could have been a threat became the quarter’s biggest profit source.
🏦 Margin divergence: Beneath the capital-markets boom, the lending picture split. JPMorgan raised its full-year net interest income guide, but net interest margins compressed at Bank of America, Citi, and Wells Fargo as deposit costs stayed stubbornly high. The easy-money era of NII growth is uneven, and the banks leaning hardest on rates are feeling it most.
💵 Capital floods back to shareholders: Confidence showed up in the payouts. JPMorgan authorized a fresh $50 billion buyback and a 10% dividend hike, Wells Fargo repurchased ~$7 billion in the first half and lifted its dividend 11%, and Citi and BofA kept returning capital aggressively. With balance sheets flush, the big banks are signaling they see more room to run.
🛢️ Energy relief, already reversing: June CPI cooled to +3.5% Y/Y, driven almost entirely by a 9.7% drop in gasoline after the Iran ceasefire reopened the Strait of Hormuz. That relief is unwinding fast. The ceasefire collapsed on July 8, oil is climbing again, and the July inflation print will look very different.
📉 The K-shaped consumer holds: Card spending rose 9% Y/Y at both BofA and Wells Fargo, and provisions came in below expectations across the group, signs the consumer is still spending and paying on time. But management remained cautious about affordability for lower-income households, and the divide between asset-rich households and everyone else remains.
🌋 Risks below the surface: Even while celebrating records, Dimon warned of “risks shifting below the surface like tectonic plates,” naming geopolitical conflict, sticky inflation, large fiscal deficits, and elevated asset prices. Charlie Scharf echoed him, cautioning that favorable conditions “do not go on forever.”
🔑 Takeaway: The big banks are posting record profits amid a trading and dealmaking boom, returning capital freely, and leaning on a consumer that’s still holding. But margins are thinning where the boom isn’t reaching, and management keeps pointing to the same tensions that leave little room for error.
Let’s visualize them one by one and highlight the key points.
Net revenue grew 28% Y/Y to $57.3 billion ($6.7 billion beat):
Net interest income (NII): $25.5 billion (+10% Y/Y).
Noninterest income: $31.8 billion (+47% Y/Y), lifted by a $4.6 billion one-time Visa gain.
Net income: $21.2 billion (+41% Y/Y).
Adjusted EPS: $6.14 ($0.34 beat).
Key developments:
📈 Equities smash the record: JPMorgan’s stock traders pulled in $6.0 billion (+86% Y/Y), beating even the highest analyst estimate and pushing total trading revenue to a fresh record of $12.1 billion (+35% Y/Y). The volatility that started with the Iran war and rippled through global equity markets, including a chaotic stretch in Korean stocks, handed the desks their best quarter ever.
💳 The Visa windfall: A long-held Visa stake paid off to the tune of $4.6 billion, plus another $1.0 billion in equity investment gains. Reported EPS of $7.70 crushed consensus, but ~$1.56 of that was one-time. Even excluding the windfall, the bank still delivered a 23% return on tangible equity.
🚀 Dealmaking roars back: Investment banking fees jumped 30% Y/Y to $3.3 billion, riding the record SpaceX IPO, heavy index rebalancing, and a wave of AI-related financing. M&A advisory rose 20%, though that fell short of the 27% expected by analysts. CFO Jeremy Barnum called the environment “dynamic and interesting across a whole variety of dimensions.”
🏦 NII guidance raised: Management lifted the NII outlook to ~$105.5 billion (from $103 billion), as higher-for-longer rates extend the tailwind. The card net charge-off forecast also improved, to ~3.2% from 3.4%, a sign that consumer credit is holding better than feared.
💸 Expenses are the catch: Full-year expense guidance climbed to ~$107.5 billion (from $105 billion). Management framed the increase as the cost of doing more business, tied to the elevated activity levels that drove the revenue outperformance.
💰 Capital floods back to shareholders: JPMorgan raised its quarterly dividend 10% to $1.65 and authorized a fresh $50 billion buyback, with CET1 at a comfortable 14.1%. With Dimon having pegged excess capital near $40 billion, the firm has ample room to keep returning cash even as Basel III capital rules loom.
🔑 Takeaways: Every business line set records, and the NII guide flipped from headwind to tailwind versus Q1. Underneath a one-time Visa boost, JPM showed it can monetize volatility, dealmaking, and higher rates all at once.
Key quote:
CEO Jamie Dimon: “These results were the product of a particularly favorable environment with an elevated level of market activity, as well as rigorous execution, years of consistent investment, and thoughtful capital deployment.”
2026-07-11 22:00:58
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Today at a glance:
🥤 PepsiCo: Gas Prices Bite
🛩️ Delta: Premium Absorbs Fuel Shock
🍪 General Mills: Reinvestment Phase Ends
PepsiCo’s Q2 revenue rose 6% Y/Y to $24.2 billion ($230 million beat), with non-GAAP EPS of $2.20 ($0.01 miss). Organic revenue growth of 2.4% included effective net pricing plus modest volume gains, with FX adding 2.2 points and M&A 1.8 points. Shares fell by more than 3% anyway.
The North American segment disappointed after Q1’s tentative snack rebound:
Frito-Lay volume went flat, and revenue declined 2%, reversing the momentum from Q1’s 2% volume gain.
North American Beverages volume slid 4%, with operating margin down 90 bps.
International remained the engine, projected to top $40 billion in revenue this year, with Asia Pacific Foods delivering double-digit volume growth.
CEO Ramon Laguarta said, “The consumer is worse than what we had anticipated, and it’s driven mainly by gas prices.” US gas prices surged above $4/gallon during Q2 due to the Iran conflict, and Laguarta said the pullback was concentrated in convenience stores and other impulse-purchase channels. PepsiCo is now tweaking its 15% price cuts by segment and has noted delays in regaining the shelf space retailers had promised.
The healthier “permissible portfolio” (protein-fortified snacks, portion-controlled multipacks) hit $3 billion in value and is growing double digits, which Laguarta flagged as a bright spot. Activist Elliott’s pressure to accelerate the turnaround continues in the background.
PepsiCo reaffirmed full-year FY26 guidance, with organic revenue growth of 2–4% and core constant-currency EPS growth of 4–6%, though management flagged that results are likely to land at the low end of the EPS range. Tariff refunds will contribute roughly a full point of EPS growth to offset commodity inflation. The next question is whether the impulse channel recovers as gas prices ease, or whether Frito-Lay needs another pricing reset.
2026-07-10 20:02:57
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Starting January 2028, no new PlayStation game will ship on a disc, third-party publishers included. That timeline caught some fans off guard, but the disc gave up its usefulness years ago. Critical day-one patches are now standard, so the plastic in the box is already just a glorified install key with better packaging. Digital accounts for ~80% of Sony's full-game sales, and many smaller titles skip the box altogether.
Take-Two Interactive got a head start on Sony. Its upcoming game, GTA VI, will ship this November with a download code in a box and no disc at all. It’s an admission that a disc has become more of a liability than an asset. A physical disc means locking the code weeks before launch and hoping it doesn’t leak in the meantime.
Killing the disc kills the resale market that’s quietly taxed every publisher for decades. A used copy undercuts the full-price version by a few dollars within days of launch, and the publisher sees nothing from the resale. Publishers tolerated that leak while the market was growing. But Console was gaming's slowest-growing segment in 2025, up just 3% Y/Y to $45 billion, or 22% of the ~$200 billion global games market now dominated by mobile.
AAA budgets keep climbing, and studio layoffs have become routine at big publishers. Microsoft just proved how bad that math has gotten. Xbox is cutting 3,200 jobs, 20% of its workforce, and divesting four studios. CEO Asha Sharma told staff the business is "not healthy," operating at margins three to ten times below those of comparable platform and publishing peers. A business model that stops leaking resale value to GameStop is exactly the fix a stagnant industry needs.
Today at a glance:
💰 Pricing the pure plays
🏴☠️ Can Ubisoft turn it around?
While consoles have trailed mobile gaming for years, GTA VI is shaping up to be the biggest single entertainment release in history, game or otherwise. Some analysts see it selling over 40 million units at launch, with the lowest-priced edition running at $80.
The market is already pricing that in. Take-Two now trades at 8.0x its average net bookings over the past three years, the highest multiple in this peer group.
Here's how the net bookings multiples of the leading console publishers stack up:
🇺🇸 Take-Two (8.0x): With an enterprise value near $47 billion, Take-Two is the largest publicly traded standalone gaming publisher. FY27 guidance has net bookings jumping to ~$8.1 billion from $6.7 billion in FY26, which would pull the forward multiple closer to 6x. The market is already pricing a big GTA VI launch.
🇺🇸 EA (7.2x): The Saudi PIF-led consortium took the company private at a $55 billion enterprise value. Live-service sports franchises give EA the most predictable revenue base in the group, which is exactly what a private buyer pays up for.
🇯🇵 Capcom (7.2x): The Japanese publisher is valued at nearly $7 billion and trades at a premium multiple, supported by a standout margin profile (~39% operating margin in FY26). A successful remake strategy turned Resident Evil from nostalgia into a repeatable growth engine, while Monster Hunter and Street Fighter continue to prove that Capcom can refresh mature franchises with strong commercial results. Capcom’s efficiency and consistent execution are what earn a multiple this rich.
🇯🇵 Square Enix (2.0x): Square Enix trades at the low end of the group, with a ~$4 billion valuation. Its RPG franchises, Final Fantasy and Dragon Quest, carry the portfolio. Operating margin sits around 13%, roughly half the peer average, dragged down by uneven execution, bloated budgets, and several high-profile misses. An activist investor is now pushing management to close that gap.
🇫🇷 Ubisoft (0.6x): The French publisher has fallen from a €12 billion enterprise value in 2018 to just over €1 billion today, a collapse driven by escalating budgets on major titles, repeated project cancellations, and franchise fatigue across Assassin's Creed and Far Cry.
Bottom Line: Every publisher in this cohort benefits from Sony killing the disc. But the multiple investors are willing to pay comes down to trust. Great IP only matters if it ships on time and turns into cash.
Assassin’s Creed Black Flag Resynced, a full remake of the studio’s 2013 pirate adventure, just launched on July 9. The original game has been played by over 34 million unique players. Ubisoft wants to follow in Capcom’s footsteps by modernizing its biggest hits. Commercial success of remakes is more predictable, and upfront production costs are usually lower, making it a potent combo. Ubisoft’s CEO, Yves Guillemot, officially confirmed that the company is developing multiple remakes of older Assassin’s Creed games.
The remake is arriving while the company is priced as if bankruptcy is on the horizon. Ubisoft has an enterprise value of ~€1.2 billion, with average annual net bookings of nearly ~€2 billion. Even multiplying this valuation by 3 would put it merely in line with struggling publisher Square Enix.
That price implies a company in slow-motion liquidation rather than an underperforming publisher. As of July 2026, nearly 14% of Ubisoft stock on Euronext Paris is short (people betting the stock will go down).
So what’s happening here? Let’s look at the underlying business.
Ubisoft spent January reorganizing into five Creative Houses, decentralizing decisions that used to run through the center. Vantage Studios ended up holding the crown jewels: Assassin’s Creed, Far Cry, and Rainbow Six. The other four Houses split the rest of the portfolio across multiplayer shooters (Ghost Recon, The Division), live services (The Crew), and casual and family titles (Rayman).
Tencent closed a €1.2 billion investment in Vantage Studios in November 2025, taking a 26% economic interest while Ubisoft retains exclusive control and keeps consolidating the studio’s results. The deal valued Vantage Studios at a pre-money enterprise value of €3.8 billion. That structure suggests that both sides see more value in Vantage than the market is currently assigning to Ubisoft as a whole (€1.2 billion). But the Guillemot family's control and Tencent's right of first refusal make an EA-style buyout unlikely.
Tencent’s cash injection did real work on the balance sheet. Ubisoft closed FY26 (ending in March) with an adjusted net debt of €0.2 billion and cash reserves of €1.3 billion, a very different position from the one that had investors bracing for a covenant breach a year ago.
The relief could be temporary, though. Bondholders can demand ~€0.5 billion back in November. Another ~€0.7 billion follows in late 2027. That is nearly the entire cash pile due before the FY28/FY29 slate can fully repair free cash flow. Add a year of guided burn, and the math stops working. Ubisoft's near-term future hinges on refinancing.
In FY26 (ending in March), Ubisoft’s back catalog generated €1.3 billion in net bookings, compared with just €0.2 billion from new releases and other revenue. That’s 84% of the entire business running on games released in previous years. It illustrates the durability of a digital catalog library that gives the company a revenue floor, even without new tentpole releases. The disc-free future acts as a tailwind for this revenue line, with no second-hand market eating away at the long tail of legacy franchises.
FY24: Net bookings peaked at €2.3 billion, driven by Assassin’s Creed Mirage and The Crew Motorfest, with strong back-catalog performance.
FY26: Net bookings fell to €1.5 billion, with no notable new releases.
FY27: Guidance for the fiscal year that started in April points to a high-single-digit decline, implying roughly €1.4 billion in net bookings. Black Flag Resynced is the main new release, and Ubisoft’s guidance appears to leave room for upside. The game does not need to be a massive blockbuster to improve the narrative. That is the advantage of low expectations.
Ubisoft plans for a rebound in FY28 and FY29, when management expects to ship Assassin’s Creed Hexe, Far Cry 7, and a new Ghost Recon, lifting bookings closer to the ~€2 billion of previous years. A success for Black Flag Resynced could remind the market that the IP still works. It would certainly be a good idea ahead of a Netflix tie-up with an Assassin’s Creed show expected in the coming months. The main risk ahead is that the upcoming games could be postponed if the quality is not there, leaving the company in a cash flow hole.
Free cash flow has been negative in four of the last five fiscal years, including -€0.5 billion in FY24 and -€0.4 billion in FY26. Management already stated that free cash flow consumption in FY27 will be no more than -€0.5 billion, but that’s a low bar.
On the bright side, Ubisoft expects cumulative free cash flow to turn positive from FY27 through FY29. That would be good news for liquidity and solvency. But that inflection point still depends on a set of games to actually launch over that period.
To achieve such a rebound, Ubisoft has been cutting fixed costs aggressively, reducing them from €1.75 billion in FY23 to €1.44 billion in FY26. The target is €1.25 billion by the end of FY28. Whatever happens to bookings, Ubisoft is guiding to a structurally smaller cost base than the one that burned through FY23 and FY24. To do so, they have reduced their workforce from ~20,000 to roughly ~16,000.
The cost reset lowers the hurdle, but it does not solve the problem on its own. Ubisoft still needs enough successful releases to spread that smaller cost base over the same bookings pool.
The market factors a solvency risk: It also assumes the company may face significant dilution if it needs to raise capital to meet near-term obligations. The catalog is de-risked, but there is no margin of safety for the next few high-profile titles. Ubisoft still has to navigate near-term debt maturities while proving that FY27 is the trough and FY28/FY29 can restore positive cash flow.
There is an asymmetric upside if FCF rebounds: Sub-1x EV/bookings against a back catalog this large only makes sense if the market expects the catalog itself to erode. But the back-catalog net bookings trend suggests the portfolio has been very resilient and that only one high-profile game per year is needed to keep the company in the black moving forward, which seems like a very low bar for ~16,000 employees.
Tencent put a real price on the crown jewels: The minority stake in Vantage Studios signals that Tencent sees value in the main IPs and studios. That value was €3.8 billion just a few months ago.
A challenging history: Ubisoft has been plagued with toxic workplace allegations, game controversies, repeated delays, and the founding Guillemot family keeps tight control, with family members placed in key leadership positions.
Bottom Line: Ubisoft doesn’t need a miracle. FY27 guidance looks conservative, the catalog still produces more than €1 billion a year, and fixed costs are finally moving lower. But the company still needs to ship the next major slate by March 2029 and prove the new cost base can turn bookings into cash. At 0.6x average net bookings, the market is not paying for that yet. After years of delays, cancellations, and uneven launches, execution remains the hard part. If cash burn persists, the balance sheet becomes the only story that matters.
That's it for today.
Happy investing!
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Disclosure: I own AAPL, GOOG, META, and TCEHY in App Economy Portfolio. I also personally own UBSFY. I share my ratings (BUY, SELL, or HOLD) with App Economy Portfolio members.
Author's Note (Bertrand here 👋🏼): The views and opinions expressed in this newsletter are solely my own and should not be considered financial advice or any other organization's views.
2026-07-07 20:01:23
Welcome to the Premium edition of How They Make Money.
Over 300,000 subscribers turn to us for business and investment insights.
In case you missed it:
SK Hynix is trying to pull off the largest ADR listing in history.
The planned Nasdaq listing targets over $28 billion (45 trillion won), edging past Alibaba’s ~$22 billion New York debut in 2014. Trading is expected to begin around July 10. Every dollar is earmarked for fabs, packaging, and lithography machines. The funny part is that the company doesn’t really need the money.
SK Hynix is the world’s #1 HBM maker (High Bandwidth Memory) at ~57% share. The company sold out of capacity three years in advance, and it just surpassed Samsung to become South Korea’s most valuable company. It also already trades right in line with Micron, near 7x forward earnings. The re-rating a Nasdaq listing is supposed to deliver already happened.
We broke down Micron’s blowout quarter last week, noting that the company benefited from the AI memory shortage.
This week, the leader that ships the majority of NVIDIA's HBM is asking US investors to price it like the AI infrastructure play it has become.
Today at a glance:
📈 The US Listing
🧠 How SK Hynix Makes Money
📊 Q1 FY26 in Numbers
🇰🇷 What You're Paying
⚔️ Competition & Risks
🔭 What to Watch
🧭 Personal Take
SK Hynix shares trade in Seoul, in won, on the Korea Exchange. That makes them awkward and expensive for US institutions to touch directly. An American Depositary Receipt (ADR) solves that. The company issues new shares, parks them with a custodian bank, and a US depositary issues receipts that trade on Nasdaq in dollars like any American stock.
SK Hynix plans to issue up to 178 million ADRs, the equivalent of 2.5% of the company. Each Seoul share trades near $1,580 (₩2,425,000) and splits into ten ADRs, so a single ADR is referenced at around $158 (₩242,500), with the final price set on July 10. The ADRs list on the Nasdaq Global Select Market under SKHY.
Every dollar is going into capacity.
The proceeds are split four ways:
🏭 Yongin Y1: the first fab at SK Hynix’s sprawling new Yongin cluster, its next major DRAM and HBM base.
📦 Cheongju P&T7: an advanced packaging plant built for HBM, where the die-stacking that sets SK Hynix apart actually happens.
🔬 ASML EUV scanners: the extreme-ultraviolet lithography tools that leading-edge DRAM can’t be made without.
🇺🇸 Indiana: a $4 billion packaging plant, SK Hynix’s first US fab.
Compare that to the SpaceX IPO. SpaceX is raising funds for its CapEx ramp, with $10 billion in negative free cash flow in Q1 alone. SK Hynix is raising money from a position of strength, with $24 billion in net cash and an order book sold out through 2028.
SK Hynix first floated a raise of around $10 billion, and the board eventually settled on $28 bllion. You don’t do that unless internal demand forecasts have moved well past the old memory-cycle playbook.
There’s a control wrinkle worth mentioning. SK Square, the holding company that owns ~20% of SK Hynix, must keep its stake above 20% under Korea’s holding-company rules. That constraint is why the deal issues new shares sized to protect that floor, rather than selling treasury stock. Some Korean shareholders are unhappy about the dilution. For US investors, the dilution is the price of admission to a stock they couldn’t easily buy before.
SK Hynix started in 1983 as Hyundai Electronics, the chip arm of the Korean industrial group. The Asian financial crisis reshaped it. Seoul forced a 1999 merger with rival LG Semicon, creating a top-tier DRAM maker overnight and burying it in debt. When memory prices collapsed ~80% in 2001, the renamed Hynix lost billions, fell under creditor control, and became a national symbol of corporate failure.